It’s official, at least for now. Officials at Finra now say they are no longer pursuing their interest in becoming the regulator of RIAs.

Many, myself included, were always skeptical of Finra’s desire to encroach upon the Securities and Exchange Commission’s turf. After all, there are many valid reasons to question whether it was Finra’s job.

Congress specifically assigned the role of RIA regulation to the SEC when it passed the Investment Adviser’s Act of 1940. Any change would require an act of Congress, which invariably has numerous other priorities on its slate.

Many advisors question whether Finra has performed its basic function of regulating broker-dealers well enough to earn additional responsibilities. The record reveals that both Finra and the SEC have consistently been behind the curve and slow to react as problems in the financial markets have developed. Put simply, when the forces of technology, big Wall Street money and regulation collide, Wall Street and technology inevitably overpower the regulators.

The argument for transferring RIA regulation from the SEC to Finra was based on several factors. First, Finra has the financial resources the SEC lacks. Second, with the congressional mandate in Dodd-Frank requiring brokers to become fiduciaries like RIAs, regulatory harmonization sounded reasonable. Third, many brokers engage in a fiduciary relationship with a number of their clients, so there was regulatory overlap.

But even before Dodd-Frank became law, different parties within the financial services business clashed repeatedly over the precise definition of a fiduciary standard. When the legal community weighed in, they often sought to define the standard in whatever fashion best suited their clients.

In the wake of the financial crisis, the brokerage industry was eager to appear pro-consumer, so many organizations and individuals associated with the community embraced the standard on paper even as they sought to dilute it. I recall seeing Finra CEO Richard Ketchum, a longtime SEC veteran, speak at a conference several years ago and thinking he could be trusted to place investors first. But my very next question was whether I could predict who would succeed him. The answer is no.

Whoever regulates the business of investment advice—and it won’t be just the SEC and Finra—over the next two decades will have their hands full. There is a widespread consensus that Americans haven’t saved enough. That means the financial services industry is going to have to get “creative,” a word that should scare any observer of financial services.

Vehicles like annuities and reverse mortgages, with all their attendant risks, are likely to proliferate. RIAs may dislike them and investors may hate them. No one likes sending money to jail or hocking their homes in retirement. But most Americans simply don’t have the savings or the pensions to live off the income their assets throw off. So the business is going to require a clairvoyant watchdog to maintain the public trust.

Evan Simonoff, Editor-in-Chief
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